Unilever shares were buoyed increasing margins and sales that beat expectations in the first half, but concerns were raised over its falling market share as pricing hampered volumes.
The Anglo-Dutch business posted underlying sales growth of 9.1% for the six months to 30 June. This was wholly driven by pricing, which was up 9.4% while volumes fell 0.2%.
Unilever highlighted that price growth was slowing, having moderated from 13.3% in the fourth quarter of 2022. This helped volumes move back to being “virtually flat” as performance in beauty & wellbeing and personal care almost offset volume declines elsewhere.
Regionally, emerging markets grew underlying sales by 10.6% with price growth of 10%, while developed markets saw slower sales growth of 6.9% as price growth of 8.4% was hampered by a 1.4% fall in volumes.
Underlying operating profit was €5.2bn, up 3.3% versus the prior year, with underlying operating margin up by 10bps to 17.1%.
Meanwhile, gross margin increased by 30bps despite €1.6bn of net material inflation and increased production and logistics costs, as cost increases were fully mitigated by pricing, savings and improved mix.
However, Unilever stressed that, after several periods of high cost inflation, gross margin remained 270bps below its level in the first half of pre-Covid 2019.
Analysts at Barclays noted the “positive shape” of its second quarter trading, softening the input inflation picture for the second half and strong sales beats in key beauty & wellbeing and personal care businesses.
But Bernstein noted the underlying results “provided some head-scratchers”, including a worrying slump in market share.
Unilever revealed that, on a rolling 12-month basis, the percentage of its business winning market share reduced to 41% – which Bernstein said was the second-lowest figure on record.
Unilever blamed the impact of a 17% SKU reduction, “pricing dynamics” and “consumer shifts in certain markets” – an admission that mitigating inflation through price hikes has led to consumers seeking cheaper alternatives.
Charlie Huggins, portfolio manager at Wealth Club, bemoaned a “solid but uninspiring” performance. “The question is – should Unilever be doing better? The answer is almost certainly yes. There are two big priorities for new CEO Hein Schumacher: get margins back up to where they were pre-pandemic, and tackle the underperforming parts of the portfolio, especially Europe.”
Unilever shares ended Tuesday up 4.3% to 4,193p, which represented a two-month high. However, the fmcg giant’s shares remain flat in the year to date.
Elsewhere, the world’s largest food producer Nestlé raised its full-year sales outlook after better-than-expected growth in the first half of the year – also driven by pricing.
For the six months to the end of June, it posted organic growth of 8.7%, driven wholly by a 9.5% rise in pricing. Volumes were down 0.8%.
Nestlé said the volume declines were affected by portfolio optimisation and capacity constraints, stating that overall demand elasticity was limited in the context of pricing actions.
Underlying trading operating profit margin was 17.1%, up 20bps on a reported basis and 30bps in constant currency.
Nestlé shares were up 2.4% to CHF107.84 in early trading on Thursday on another pricing-driven beat of sales expectations.
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